For a family business to be successful as both the company and the family grow, it must meet two challenges: achieving strong economic performance, and keeping the clan committed to and capable of continuing ownership. Family businesses must safeguard five dimensions of activity, advise McKinsey & Co. consultants Christian Caspar, Ana Karina Dias, and Heinz-Peter Elstrodt in the McKinsey Quarterly. These are:
Family businesses can implode over conflicts within the clan about money; poor management resulting from nepotism; and infighting about the succession of power between the generations. That means the family must take care to regulate its vital roles as shareholders, board members, and managers.
"Large family businesses that survive for many generations make sure to permeate their ethos of ownership with a strong sense of purpose. Over decades, they develop oral and written agreements that address issues such as the composition and election of the company's board, the key board decisions that require a consensus or a qualified majority, the appointment of the CEO, the conditions in which family members can (and can't) work in the business, and some of the boundaries for corporate and financial strategy," the consultants write.
One technique is to establish a family council representing different branches and generations that, in turn, is responsible to a larger family assembly used to build consensus on major issues.
The family can face a delicate balance maintaining its control or influence while raising fresh capital for the business and satisfying the family's cash needs.
Some shut external investors out of the entire business and fuel growth by reinvesting most of the profits, while others bring in private equity to inject capital and introduce a more effective corporate governance culture.
To keep control, many family businesses restrict the trading of shares: Family shareholders must offer their relatives the shares first. If exit is restricted and dividends low, some family businesses opt for generational liquidity events to satisfy the family's cash needs, such as selling publicly traded businesses in the corporate umbrella or selling family shares to employees or to the company itself, with the proceeds going to the family.
Family businesses need strong boards. While family members usually play a large role on boards, they are balanced in effectively run companies by knowledgeable outsiders.
The consultants note one family has a rule that half of the seats on the board should be occupied by outside CEOs who run businesses at least three times larger than the family one.
Successful family businesses usually seek steady long-term growth and performance and moderate risk to avoid risking the family's wealth and control of the business.
Families need strong capabilities for managing their wealth, since sound finances can help to preserve harmony. The consultants highlight five factors that increase the chances of success: a high level of professionalism; rigorous investment and divestment criteria; strict performance management; a strong risk-management culture; and thoughtful talent management.
Charity is an important element in keeping families committed to the business. It provides meaningful jobs for family members in the family foundation who don't work in the company, and promotes the family's values over the years.
Forget your memory
- Don't rely on your memory, advises consultant Lisa Kanarek. No matter how small the task, put it on a to-do list. Without putting an item on the list, it could fall through the cracks. http://www.smbceo.com
String them along with discounts
- A retail tactic of steadily reducing discounts may be effective, a study by academics Michael Tsiros and David Hardesty suggests. In one test for a kitchen store offering a promotion on wine-bottle stoppers, sales increased by 75 per cent when it employed a strategy of offering the items at 20 per cent off for three days, and then returning them to full price. However, sales jumped by 200 per cent when the stoppers were offered at a discount of 30 per cent the first day, 20 per cent off the second day, and 10 per cent off the third day. That, presumably, was because the steadily declining discounts reminded people more powerfully that they would regret not acting soon. Get To The Point Newsletter
Playing it by the book
- When you have an employee intent on playing everything "by the book," consultant Shaun Belding recommends making it crystal clear which rules are absolutely non-negotiable and which should be treated more as guidelines. If the employee makes an inappropriate by-the-book decision, use it as an opportunity for coaching, not for scolding. Winning At Work Newsletter
Don't disappear after you delegate
- If you delegate, don't disappear. You need to make it clear you will be available for support or feedback, even if you are not micro-managing. Ian's Messy Desk
Taking the mystery out of buying
- When Home Depot got into the carpet business in a serious way, it realized that most people don't know much about carpets - and what they think they know may be wrong. So the company printed a one-page information sheet titled "Taking The Mystery Out Of Buying Carpet." With that example in mind, consultant Donald Cooper asks: How could you take the mystery out of buying and effectively using what you sell? Donald Cooper Corp. Newsletter
- If you're ever frustrated by being unable to print out the names of the files in a directory folder, here's a solution: The Directory Printer at Karen's Power Tools ( http://www.karenware.com) is freeware software that allows you to print a list of all of the items in the folder, with the option of excluding file information ancillary to your needs, such as the file size or the date last modified. Steve Bass Techbites
Networking: How to handle silence
Let's say you are dealing with a prospect who seems highly interested in your services or a client you have done a lot of work for when, suddenly, that individual stops calling back. The resulting uncertainty plays to our insecurities, notes consultant Peter Bregman on Harvard Business School blogs.
"We don't know the other person thinks we did a bad job. We don't know the other person doesn't like us. And that keeps us wondering. That's what makes silence so hard. Discomfort lies in uncertainty. If we knew, then we would deal with it and move on. But since we don't, we wait, wonder, and stress," he writes.
In such situations, he suggests:
- Acknowledge that you don't know what the silence means. Resist the temptation to fill in the blank.
- Reinitiate contact and indicate to the other party that you don't know how to interpret the silence. Ask him or her to fill in the blank. If the silence persists after two unanswered e-mails or voice mails, send a final one: "I don't mean to hound you - but I figured I'd reach out one more time. Please let me know if you are able to discuss this further. If I don't hear from you, I'll assume you're not interested."
- No matter what the individual says, act as if it's the truth. If you're told the other party has been busy and that's the only reason, ask when a good time would be to pick up the conversation again.
Marketing: The 3 Ps of Webinars
Webinars are growing in popularity, but their quality can vary. To boost the effectiveness of your webinar, you must take care with the 3 Ps: pre-work, post-work and participation.
That's the word from consultants Mark Scullard and Jeffrey Sugarman on managesmarter.com, based on a survey they conducted of just over 1,900 webinar participants.
The two practices that were most related to perceived effectiveness were the quality of the pre-work, such as readings and assessments, and post-work, such as readings and quizzes. The third component of an effective webinar was participation - the ability to ask questions and take part in small group discussions.
The researchers were surprised that neither the topic nor the class size for the webinar made any difference in how the participants rated its effectiveness. Nor did high tech: Webinars that employed cutting-edge technology, like whiteboards, polling and live chat, were deemed only slightly better than stripped-down efforts.